Two words -- China's Facebook -- were all that underwriters needed to sell hungry investors on this fast-growing dot-com darling. The American depository shares, which were originally targeted to price between $9 and $11 apiece, were gobbled up by institutional investors and prized underwriter clients at $14.

It didn't seem to matter that head of Renren's audit committee had to step down over accusations of accounting irregularities at his own company just days before the IPO. Renren also had to revise its usage base growth claims lower after being called out on its metrics. The company's peculiar corporate structure -- a Cayman Islands-based holding company with only contractual rights to the economic benefits of the social network where a husband-and-wife team hold the majority stakes -- also didn't seem to faze appetites for the Facebook of China.

Renren was ready to run run!

Birth of a sensationYou've probably learned to get out of the way when hot debutantes enter the room, and Renren was a scorcher. The stock opened at $19.50, hitting an intraday high of $24 before settling to close at $18.01. A whopping 90.8 million shares exchanged hands on its May 4 IPO, far more than the 53.1 million shares that were actually offered. In other words, there were a lot of speculators simply flipping the shares that day.

There's nothing wrong with a market's euphoric response for an online leader. Google (NAS: GOOG) went public at $85 seven years ago, opened at $100, and has been trading in the triple digits for all but a brief spell during its first few weeks on the market.

However, Renren's hype came with an unfortunate price tag. With the equivalent of 400 million ADS outstanding after the IPO, Renren's $14 IPO valued the company at a healthy $5.6 billion market cap -- and a mindboggling $9.6 billion sticker at its opening day high of $24.

This would be fair if Renren was worth it. Spoiler alert: It wasn't.

Death of a sensationRenren can't be denied its growth. Revenue climbed 64% to $76.5 million last year. It posted a loss, but that would turn into a small profit if it wasn't for an accounting adjustment on the value of its outstanding warrants.

Growth has slowed in 2011, but it's actually been accelerating throughout the year. After posting year-over-year revenue growth of 47% during the first quarter, Renren's top-line gains have clocked in at 53% for the second quarter, and 57% in its latest quarter. Perhaps more encouragingly, Renren has posted adjusted profits in its two most recent quarterly reports.

The problem is that no one would value a company of this scope and scale with a market cap of $5.6 billion.

As I pointed out back in May, comparing Renren's valuation to the slightly slower growing but well-regarded online portal operator Sohu.com (NAS: SOHU) , Renren's price tag was rich even among Chinese Internet favorites.

"Sohu's profit of $139.3 million last year is nearly twice Renren's revenue -- yet Sohu commands a little more than half of Renren's current market cap," I wrote at the time.

The gradual realization of Renren's stiff price tag sent the stock lower. It has been trading consistently in the single digits since early August, all the way down to yesterday's close of $3.64.

Chasing a dreamThere are just three publicly traded companies that can be considered pure plays in social networking. There's Renren, of course. We also have Latin America's Quepasa (ASE: QPSA) and corporate-minded social speedster LinkedIn (NYS: LNKD) . Both Quepasa and Renren have fallen sharply this year, though LinkedIn is still trading above its IPO price.

The news out of Renren in its first seven months as a public company have been largely positive.

Renren helped roll out a co-branded credit card with social features in June.

A strategic agreement with MSN China was brokered in August.

Trying to cash in on the success of SINA's (NAS: SINA) micro-blogging platform, Weibo, Renren rolled out its own blogging service in September.

The good news here is that improving financials and the perpetually shrinking shares are creating a more attractively priced, or at least less ridiculously priced, way to play China's leisure growth. There are concerns that China may get more restrictive about the chatty nature of Web 2.0 websites, but Renren's place as China's top real-name social networking site has learned to grow with China's framework in the past.

Now that Renren's sticker price is down to $1.5 billion after a deflating year, it's easy for battered bulls to expect more out of 2012. They're probably right. It's hard to imagine the downhill ski slope that the 2011 stock chart has been continuing for too much longer as long if the fundamentals keep moving uphill.

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